Final Summary: A Cross-Country Comparison of Market-Based Environmental Policies

This project is a case study of notable market-based environmental policies in the United States and Germany.  The particular policies examined include: The Btu Tax (US), the Ecological Tax Reform (ETR) (Germany), the Clean Air Act of 1990 (US), the EU Emissions Trading Scheme (EU ETS) (Germany),  and the Waxman-Markey bill (Cap and Trade) (US).  Insights from these policies are used for context in the consideration of market-based policies in China.

I discovered remarkable variety in the outcomes of market-based environmental policies in these three nations.  While the United States is the undisputed originator of these types of policies and has had relative success with such policies in the past, it seems to have reached a barrier in its efforts to use markets to address environmental challenges.  Germany, on the other hand, has more recently implemented market-based policies on a much greater scale yet has begun to experience some resistance.  Finally, China is only beginning the process of developing environmental policy but appears to be following the lead of many Western nations in turning towards market solutions.  Still, many of its “market-based policies” fail to truly rely on the market.

I offer a various explanations for explaining the success of the enactment of market-based environmental policies in some contexts and their failure in others.  To be brief, the most important characteristics appear to be:

a. A government supportive of environmental policy-making (when this condition does not hold, robust environmental policy is not made)

b. Favorable public opinion (in democratic nations, the support of the public is a powerful tool that can overcome a number of potential roadblocks, including industry opposition and governmental apathy)

c. Disunited industry attitudes (this situation is ripe for political maneuvering by elites)

In contrast, policy outcomes tend to favor industry when two conditions hold:

i. Industries are united in opposition to a policy

ii. The public is uninformed/disinterested

These various conditions may be used as tools from which to predict the success of future attempts at market-based environmental policy-making and may prove useful in striving to achieve the particular conditions necessary to either promote or hinder the passage of strong market-based environmental legislation.